Quoting the most recent Central Bank of Kenya’s annual mortgage survey, the high cost of housing units and limited access to affordable long-term finance remain the leading housing market constraint.
It is not surprising then that in a country with more than 46 million people, the survey shows there were only 26,187 mortgage loans as of December 2017, a slight improvement from 24,059 accounts by the end of the previous year.
This represents an 8.8 percent growth or a paltry 2,128 increase in loan accounts.
More worryingly, the number of institutions offering mortgages dropped to 31 in 2017 from 35 in the previous year, which is partly due to the acquisition of two banks but there were two other commercial banks which decided to stop offering the loans altogether.
This is not a position of pride in the 21st Century, and more so for Kenya, which prides herself as being the economic powerhouse of East Africa, a fact that calls for urgent intervention to change the narrative.
Promisingly, the government is shifting its attention to the big housing gap with the Big Four agenda and the plan to add another 500,000 affordable houses is most welcome.
This is indeed a timely proposition and as a leading financial institution, we strongly support it not only because of the opportunity it accords us to grow our mortgage business but also for the resulting social impact as we contribute towards the achievement of sustainable human settlements.
Further to the above statistics, it is important to delve deeper into the reasons as to why we are where we are.
In Nairobi, for instance, developers have mostly concentrated on the high-end areas such as Lavington, Kilimani and Westlands — to mention but a few — to the exclusion of the affordable segment.
In mortgage financing, we are guided by the demand and supply economic principles.
Over the years, however, it has become crystal clear that the supply side of the equation is where the challenge lies, primarily because there have often not been enough units, or the ones available were far too expensive.
Conservative estimates indicate that Kenya is dealing with a backlog of two million housing units, with the deficit growing by 150,000 units every year due to several factors including the limited mortgage and developer finance.
As a bank, for instance, our mortgage offering is based on a customer qualifying for certain limits, but the challenge has always been that while most clients across the industry qualify for houses costing under Sh5 million, they are not available.
These would be ideal for the average working Kenyans paying rent of up to Sh30,000 a month.
The industry has grappled with this dilemma for years and the government’s focus on affordable housing, therefore, presents a much-needed breakthrough, with the winds now shifting downwards to the untapped bottom of the pyramid.
Through the Kenya Mortgage Refinance Company (KMRC), an initiative of the Treasury and World Bank, the government will support the affordable housing agenda by providing secure, long-term funding to the mortgage lenders, thereby increasing the availability and affordability of mortgage loans to Kenyans.
Using the demand-supply ideologies, the KMRC will play on the demand side, while on the supply side, we have the government through the Ministry of Housing, the National Housing Corporation and the private sector developers who will put up the houses.
As financial institutions, we are plugging into the demand side to provide long-term mortgages to Kenyans who qualify to buy these houses.
Over the last two years since the introduction of the interest capping law in September 2016, there has been an increased demand for mortgage loans due to perceived affordability. Under the KMRC, mortgage loans will be priced at below 10 percent, down from the current averages of 13 percent. This is expected to drive demand to unprecedented proportions.
Currently, the main funding source for banks is their customer deposits, which are generally very short-term in nature, restricting the bank’s capacity to lend long-term.
The KMRC is going to remove this liquidity mismatch by providing long-term funding at attractive rates while ensuring sound lending habits resulting in greater availability of fixed-rate mortgages and longer available loan terms.
This will improve mortgage affordability, increase the number of qualifying borrowers and result in the expansion of the primary mortgage market and home ownership in Kenya.